What is Maker?

Maker is a smart-contract platform that runs on the Ethereum blockchain and has three tokens: stablecoins, Sai and Dai (both algorithmically pegged to $1), as well as its governance token, Maker (MKR).

Sai (SAI) is also known as Single Collateral Dai and is backed only by Ether (ETH) as collateral.

Dai (DAI) was launched in November 2019 and is also known as MultiCollateral Dai. It is currently backed by Ether (ETH) and Basic Attention Token (BAT) as collaterals with plans to add other assets as collaterals in the future.

Maker (MKR) is Maker’s governance token and users can use it to vote for improvements on the Maker platform via the Maker Improvement Proposals. Maker is a type of organization known as a Decentralized Autonomous Organization (DAO). We will look further into this under the governance subsection. 

What are the Differences between Sai and Dai?

Maker initially started out on 19 December 2017 with the Single Collateral Dai. It was minted using Ether (ETH) as the sole collateral. On 18 November 2019, Maker announced the launch of the new MultiCollateral Dai, which can be minted using either Ether (ETH) and/or Basic Attention Token (BAT) as collateral, with plans to allow other cryptocurrencies to back it in the future. To reiterate,

Single-Collateral Dai = Legacy Dai = Sai
Multi-Collateral Dai = New Dai = Dai

Moving forward, Multi-Collateral Dai will be the de-facto stablecoin standard maintained by Maker and eventually, SAI will be phased out and no longer supported by Maker. For brevity, we will only be using MultiCollateral Dai (DAI) to walk through examples in the following sections.

How does Maker Govern the System?

Recall our brief mention on Decentralized Autonomous Organization (DAO)? That’s where the Maker (MKR) token comes in. MKR holders have voting rights proportional to the amount of MKR tokens they own in the DAO and can vote on parameters governing the Maker Protocol. 

The parameters that the MKR holders vote on are vital in keeping the ecosystem healthy, which in turn helps ensure that Dai remains pegged to $1. We will briefly go through three key parameters which you will need to know in the Dai stablecoin ecosystem:

I. Collateral Ratio
The amount of Dai that can be minted is dependent on the collateral ratio. Ether (ETH) collateral ratio = 150% Basic Attention Token (BAT) collateral ratio = 150% Essentially, what it means with a collateral ratio of 150% is that to mint $100, you need to deposit a minimum of $150 worth of ETH or BAT.

II. Stability Fee
It is equivalent to the ‘interest rate’ which you are required to pay along with the principal debt of the vault. The stability fee is at 8% as of February 2020.

III. Dai Savings Rate (DSR)
The Dai Savings Rate (DSR) is the interest earned by holding Dai over time. It also acts as a monetary tool to influence the demand of Dai. The DSR rate is set at 7.50% as of February 2020.

Motivations to Issue DAI:

Why would you want to lock up a higher value of ETH or BAT only to issue Dai with a lower value? You could have sold your assets directly to USD instead.

There are three possible cases:

I. You need cash now and you have an asset that you believe will be worth more in the future.
● In this case, you could hold your asset in the Maker vault and get the money now by issuing Dai.

II. You need cash now but do not want to risk triggering a taxable event when selling your asset.
● Instead, you will draw the loans by issuing Dai.

III. Investment Leverage
● You are able to conduct investment leverage on your assets given that you believe the value of your assets would go up. 

Original article is taken from Coingecko's book "How to DeFi"

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